Russian Activists Use Bitcoin, and the Kremlin Doesn’t Like It

MOSCOW — No government can stop bitcoin transactions, which suggests the cryptocurrency is an ideal way for dissidents and activists to raise funds.

This should be especially true in Vladimir Putin’s Russia, where independent politicians and civic groups have been under increasing pressure from the Kremlin.

Opposition politicians, human rights groups and independent media are routinely harassed by law enforcement raids, steep fines and bank account freezes. Bitcoin, which allows pseudonymous donations, would in theory be a lifeline for political activists. The reality, however, is more complex.

Presidential hopeful raises bitcoin

Leonid Volkov manages political operations for Alexei Navalny, Putin’s most prominent opponent. Navalny tried to run against Putin for president of Russia in the 2018 election but was ultimately barred by the Central Election Commission.

Navalny was nonetheless an impressive political fundraiser, including in crypto. Since December 2016, Navalny’s bitcoin wallet has raised 648 BTC. This money helped fund Navalny’s supporters in various locations across Russia as they ran for public office in their towns, investigated corruption in local governments, organized protests and so on. Navalny’s bid for the presidency ultimately failed, but his country-wide network of mobilized, loyal supporters is here to stay. 

Navalny started fundraising for his campaign in 2016, two years before the presidential election, when there was time to experiment, Volkov says. The elections that year had not yet been officially announced, so ordinary restrictions on how candidates can raise and spend money didn’t apply. Navalny’s team “took a chance” and opened a PayPal account and a bitcoin wallet – neither of which would normally be considered legitimate campaign fundraising vehicles. 

“I don’t remember how much we raised back then, but bitcoin has never been more than 10%-15% of all our donations,” Volkov said. 

According to the 2019 report by Volkov, out of 191 million rubles (approximately $2.7 million) donated to Navalny during the last year, only 9.7 million ($140,000) came via bitcoin. 

‘They’re pissed they can’t control it’

Volkov believes Navalny’s bitcoin donors are mostly IT workers and entrepreneurs who want to donate large sums without drawing the ire of the Kremlin.  

Bitcoin donations are important for two reasons, Volkov explained.

“First, the average donation [in BTC] is higher and, second, this fundraising method is uncontrollable by the authorities. By being this way, it protects other methods, too,” Volkov said. 

This may sound like a paradox but it has a certain logic. Russian authorities can freeze bank accounts, which has happened to Navalny and his allies in the past. But thanks to bitcoin there is an alternative fundraising channel that can’t be shut down. So why bother blocking channels when you know people can easily find another way? 

“Our opponents understand they can’t cut us off from sources of funding because [if they try] at least a part of the donations will go into crypto,” Volkov says, adding: “Last time our accounts got frozen, we saw an uptick in bitcoin donations.”

Navalny’s bitcoin wallet is repeatedly mentioned by the Russian state-owned TV channel Russia Today to make the point the politician is using crypto to hide something suspicious. 

“They are pissed off by the fact that the government can’t control it, so they go for any insane speculation,” Volkov comments. 

Bitcoin can also work as a currency exchange tool, Volkov says. Navalny’s supporters abroad often use PayPal for donations, but withdrawing Russian rubles from a PayPal account is expensive. A cheaper way, it turns out, is buying bitcoin using the PayPal account and then selling it for rubles on a peer-to-peer platform like LocalBitcoins, Volkov says. 

This can lead to trouble, however. The team put the fiat proceeds from the bitcoin sales into bank accounts to pay salaries, rent and other expenses, Volkov said. But this activity looked like money laundering to law enforcement and became one reason for a criminal case against Navalny and his staff. 

Nevertheless, Volkov sees bitcoin as a useful tool.

“If you see your bank accounts start getting frozen, you can take your money out in crypto and keep it there until the dust settles,” he said.

Bitcoin still isn’t much use for real-life purchases, however.

“You can’t pay your office rent and rally equipment in bitcoin. There is no market of goods and services available for bitcoin for us, so we just immediately sell it for fiat,” Volkov says. 

Adoption problem

Navalny’s use of bitcoin, even with its limitations, is an exception to the rule. There are no other publicly known crypto fundraising campaigns at that scale. For some smaller fundraisers, bitcoin donations don’t have a major impact. 

“Russian civic organizations rarely use crypto as a crowdfunding tool,” says Elia Kabanov, a Russian science writer and blogger. One reason is that it’s not easy to organize systematic work with crypto, as most accountants don’t know how to deal with it, he says. 

Roskomsvoboda, an organization tracking internet censorship in Russia, has been raising donations in crypto since 2012. However, even among its internet-savvy and privacy-valuing supporters, not that many people are willing to donate crypto. According to Sarkis Darbinyan, Roscomsvoboda’s co-founder, crypto donations have been sporadic and generally doesn’t exceed 20% of total money raised.

There’s also the risk that crypto donations will attract the attention of law enforcement, as happened with Navalny. Plus, donations in crypto can not be used as a legal source of funding for an official political campaign, Kabanov says. Crypto is in a gray zone in Russia in general, with a regulation bill currently stuck in the parliament amid a lingering possibility of a broad-stroke ban. 

But the most important obstacle is that not many people in Russia use crypto or are familiar with it. 

Crypto is “mostly for enthusiasts,” says Anton Yershov, head of staff at the Pirate Party of Russia, an unregistered party advocating for the easing of copyright laws. 

“People see that in their everyday lives, they can’t buy many things for crypto; plus, there is no clear regulation [for crypto in Russia] and, also, it’s easier to send money from your debit card than take care of a [crypto] wallet,” Yershov says.  

The Pirate Party is raising money in crypto, but it hasn’t been a huge success, Yershov says. When the group organized a conference for IT professionals, called CryptoInstallFest, people donated in crypto more than usual, Yershov said, but it still didn’t add up to much. 

Part of the problem is economic: Most Russians don’t have any savings at all, statistics show. The COVID-19 pandemic doesn’t help.

“People have been scraping the bottom since March,” Yershov said. This could make people less likely to dip into volatile crypto markets.

Easy fiat

“In Russia, people mostly use crypto either to get around the law, or IT workers use it for their personal purposes. But an ordinary donor who has a debit card or some money on his cell phone balance won’t use crypto to donate,” says Alexander Elkin, an IT worker at the fund Russia Behind Bars. 

The fund helps people who can’t afford lawyers, have a family member unfairly imprisoned or who have left prison with nothing but the clothes on their back. Started by the journalist Olga Romanova as a small group of women whose husbands were sent to jail for what they claimed were bogus charges, the movement grew into a fund with its network of lawyers and volunteers, and even education projects for prison inmates. 

Russia Behind Bars has also consistently annoyed penitentiary authorities with reports of bad conditions and torture in Russian prisons, including a poor response to the COVID-19 pandemic.  

This summer, the bank accounts of Russia Behind Bars were frozen. The only means of crowdfunding left are the electronic payment service Yandex.Money, PayPal and crypto. Russia Behind Bars has crypto addresses for bitcoin, ether, litecoin and XRP on its donation page.

Yandex.Money, owned by Russia’s most popular search engine provider, is fairly popular in Russia and neighboring countries, but the service is not beyond the reach of the Russian authorities. In 2017, Navalny’s account for donation at Yandex.Money was blocked. 

PayPal is not very popular among Russians because it’s relatively easy to send money between domestic bank accounts, and it recently announced it would stop providing domestic transfers in Russia starting August. Russian banks normally allow their clients to transfer money immediately, using a mobile banking app and a phone number of a receiver. 

If Russia Behind Bars ends up with all its fiat gateways blocked, Elkin says he might think about a tool that would allow people to buy bitcoin and donate it to the organization. There is no urgency at the moment, but that could change if pressure grows. 

Just three years ago, Russia Behind Bars used its bitcoin wallet to cover expenses such as airplane tickets and hotels even in remote parts of Russia, when the volunteers needed to visit people in faraway correctional colonies, according to founder Olga Romanova. 

But then the situation changed, and now the vendors are more wary of accepting crypto, especially after the Bank of Russia issued a letter in 2017 saying it sees allowing crypto payments and trading in Russia as “premature.” Now, only IT-related expenses, like computer software and the salaries for two IT workers at Russia Behind Bars are paid in bitcoin, Romanova said. 

“We’re not cashing bitcoin out. It’s hard enough to explain to the general public why there are investigations against us, and when there is crypto involved… [it would get even harder]” Romanova said. 

Another roadblock is there is no readily available software that would allow automatic regular donations, like via a subscription, says Roman Dobrokhotov, formerly a political activist and now the editor-in-chief of the investigative outlet The Insider. But the future might make crypto donations more relevant, for non-technical reasons.

“If the authoritarianism [in Russia] gets stronger, [crypto donations] might become more popular, people will be moving into this uncontrollable segment,” Dobrokhotov says.